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Cultural Capital: Putting a Price on The Impact of Museums

Golisano Children’s Museum of Naples – Naples, Florida

Clara J. Rice, Director, Digital Engagement, at Jack Rouse Associates, looks at the value of culture.

The art world erupted this past May when Detroit’s Emergency Manager, Kevyn Orr, suggested selling off valuable paintings in the Detroit Institute of Arts’ (DIA’s) collection to help pay off the city’s debt.  

Detroit, the largest US city ever to file for bankruptcy, has an accumulated debt of $19 billion, and the value of the DIA’s 60, 000-piece collection, including works by Van Gogh, Brueghel, Rembrandt, Rivera and Matisse, is estimated in at least the hundreds of millions of dollars.  Arguing that these masterpieces, and the entire collection, are protected by a charitable trust, three suburban Detroit counties have threatened to rescind their property tax contributions to the museum if any of these works are sold. 

Detroit Institute of Arts

DIA Image: Courtesy Wikipedia

According to officials from one of the surrounding counties, these property tax levies over a 10-year period constitute a $250M outlay to the museum; therefore, losing these monies would most certainly put the DIA out of business.  Michigan Governor, Rick Snyder, has said there are no plans to seize the assets at this time, but according to the Detroit Free Press, Snyder’s spokeswoman did say that the recent valuation of the art by Christie’s auction house was part of the “necessary fiduciary responsibility and process as part of the Chapter 9 filing, ” and Snyder has stopped short of saying that the sale of these assets is off the table.

Situations like Detroit’s, coupled with the erosion of public funding for cultural institutions and arts education, warrants a re-examination of the role of museums and other cultural institutions in spurring economic development.  

Dr. Stephen Sheppard of the Center for Creative Community Development (C3D)Dr. Stephen Sheppard (image left courtesy IAAPA) of the Center for Creative Community Development (C3D) is one of a handful researchers that is extensively studying this relationship.  Back in 2006, in a paper entitled  “Culture and Revitalization: The Economic Effects of MASS MoCA in its Community, ” he drew a strong positive correlation between the introduction of a contemporary art museum into the North Adams, Massachusetts community in 1999 and a subsequent rise in property values.  He found that, if the properties within a 1.7 km were aggregated, the total increase in property values after the opening of the Massachusetts Museum of Contemporary Art (MASS MoCA) was nearly $14 million at 2004 price levels, generating a potential annual property tax increase to the community of $195, 491.  This figure did not account for the additional $11 million in extraordinary investments in the form of the two hotels developed as a result of increased demand.

Regarding the DIA situation in particular, Sheppard points to an economic development analysis he performed on the Museum of Contemporary Art Detroit (MOCAD), in which he found that the $1 million in annual expenditures had an estimated impact of over $1.6 million to Wayne County, Michigan and supported 13 jobs regionally.  He also found that the local expenditures made by the 8, 750 visitors to MOCAD from outside Wayne County had a total annual impact of nearly $700, 000.  Scaling these figures up to match the $57 million annual budget and 400, 000 annual attendance of DIA, and assuming that only 35% of visitors come from outside of Wayne County, Sheppard estimates that the DIA annually contributes $103, 631, 976 to the local economy and directly and indirectly supports 877 jobs in the city.  


Image Courtesy Wikipedia

Therefore, ” says Sheppard, “the contribution of the working museum is greater than the annual earnings that can be obtained by selling off the collection(emphasis included by Sheppard).  He adds that his purely economic analysis does not even take into account the contributions of the museum to Detroit’s vitality or its position as a catalyst to help the city emerge from bankruptcy.  “To sell the art in the collection in order to help bond holders recover 25 cents on the dollar instead of 20 cents on the dollar is complete foolishness, ” decries Sheppard. “It makes as much sense as selling off all the schools in the city, or tearing out the power lines that distribute electricity to homes so the scrap copper can be sold.”

Sheppard’s findings on the real estate, employment and tourism impacts of museums on cities and communities have been echoed by a variety of trade associations and scholars.  In addition to the increase in property values, Sheppard’s North Adams case study revealed that, when comparing the four years before the opening of MASS MoCA to the three years after, the city welcomed 44 new businesses, which added 255 jobs and increased annual payroll by $17, 898, 000.  

The Rise of the Creative ClassThe data in American’s for the Arts’ report “Economic Prosperity IV: Economic Impact of the Nonprofit Arts & Culture Industry” appears to support this correlation.  This most recent of their four surveys, conducted in 2010, revealed that the arts and culture industry generated $135 billion in economic activity and directly and indirectly created 4.13 million jobs.  

In his seminal work, The Rise of the Creative Class, University of Toronto professor, Richard Florida, asserted that creative professionals were the driving force for economic development in the United States.  To attract and retain this creative talent pool, he argued, cities needed to create a wide range of amenities and experiences, as job opportunities have become less of a location attractant.  

One of Florida’s key concepts is Quality of Place, which he defines in terms of its “territorial assets” – the unique set of characteristics that defines a place and makes it attractive.  A city with strong territorial assets easily answers the questions “what’s there” and “what’s going on.”  According to Florida, cultural amenities are a contributing factor to quality of place: “the availability of a wide mix of cultural attractions is the signal that a place ‘gets it’ – that it embraces the culture of the Creative Age.”  

While some scholars have strongly refuted some of the fundamental tenets of Florida's creative class philosophy, others, such as Tammy Riddle, Director of Economic Development for the Cincinnati USA Regional Partnership, finds his concept “essentially true.”  In her experience showcasing the Queen City to prospective companies, “most businesses want the business case first, ” but then “the other livable factors come into play as they evaluate the ability to recruit talent to Cincinnati…Access to cultural institutions [then] becomes a major selling point.”  One could argue then, that the selling off of DIA’s assets could prove detrimental to attracting talent and business to Detroit.

Cultural Capital: Putting a Price on The Impact of Museums By Clara J. Rice

Common sense dictates that in order to bring tourists to a particular town (or state or country), there has to be something for them to see.  Sheppard writes, “one of the major advantages of the cultural institution compared with other industrial sectors is that cultural institutions create additional local annual revenue by bringing non-local visitors to town.”  Findings from the American Alliance of Museums (AAM) appear to bolster that statement.  Americans visited museums 850 million times in the past year, and more people visit museums than all major pro sports events and theme parks combined.  Museums rank among the top three family museum destinations, and 78% of all US leisure travelers participate in heritage or cultural activities.  Museums also affect duration of visits: visitors to historical sites and cultural attractions stay 53% longer and spend 36% more than any other kinds of tourists.  

This phenomenon of cultural tourism is not limited to the US. The United Kingdom’s Association of Leading Visitor Attractions (ALVA) found that eight of the top ten UK visitor attractions in 2012 were museums, and these eight museums received over 31 million visits last year.  Museums and cultural attractions are main contributors to the UK’s status as the seventh largest international tourism destination, and the total value of cultural and other tourism to the UK economy in 2009 was £115.4 billion, or 8.9% of GDP. avows that “the number of jobs that tourism supports is forecast to increase by 250, 000 this decade, from 2.645 million to 2.899 million” and that “one in twelve jobs in the UK is either directly or indirectly supported by tourism.” One can infer from the statistic above that a large percentage of these tourism jobs are at cultural in nature, forging yet another link between those institutions and employment.

Philip M. Katz,  Assistant Director for Research at AAMAssuming that the above correlations are solid, decreases in government funding and continued economic stagnation (or worse as seen in Detroit) could impede upon these advantageous economic relationships.  When asked what he felt was most negatively impacting the current economic health of museums, Philip M. Katz, Assistant Director for Research at AAM, (image left AAM) focused on the slow post-recession recovery and the steady decrease in government support over the years, and he pointed to AAM’s most recent “Annual Condition of Museums and the Economy” report as evidence of these trends.  

Museums as a whole served more visitors between 2009-2012 even as their budgets were level or declining.  While many institutions showed some financial improvement in 2012, sixty percent of museums reported some level of economic stress.  This percentage is sizable, and yet it is the lowest one since the survey began in 2009.  Nevertheless, the museum directors surveyed said, “fundraising continues to be difficult” and that “corporate support cannot be planned or anticipated with any accuracy.”

While governments that support the arts see an average return on investment of over $7 in taxes for every $1 they appropriate (not an AAM calculation, Katz points out), the arts and culture continue to find themselves on the governmental chopping block. Only 14% of museums surveyed saw increases in government funding, and 31% saw funding declines (and that’s on top of declines suffered in the previous three years). While museums are inching toward sustainability, one director said, “we had a balanced budget in 2012 but only because of reductions in pay or benefits for staff and reductions in programming for the public.” Reductions in staff, salaries and programming could all result in a diminished impact for museums on their surrounding communities.

The Mind Museum,  Philippines

The Mind Museum – Taguig, Philippines

Perhaps a bigger question than what might adversely affect the arts’ future impact on economic development, however, is whether these cultural institutions truly have any real direct impact on property values, employment or tourism now.  Are the arts really a catalyst for economic growth, or just a byproduct of it? At a 2012 National Endowment for the Arts/Brookings Institute panel entitled “The Arts, New Growth Theory, and Economic Development”, Sheppard pointed to “a pervasive causal connection between per capita culture production and per capita GDP in US metropolitan economies.”  

But Harvard Professor Edward Glaeser, also a guest on the panel, disagreed with Sheppard’s definitive line of thought, declaiming “it’s a mistake for arts to try to sell itself as an economic development policy” and arguing that research on the subject was inconclusive.  Dr. Katz generally agrees with Glaeser that there are no clear positions on the subject and that additional research is needed to provide definitive answers. “But perhaps it’s enough, ” he said, “that we’re finally asking the right questions.”

With that in mind, and with the future of the DIA (and Detroit) still uncertain, it seems appropriate to conclude with another quote from Dr. Glaeser, one that best sums up the debate over the impact of culture on economic development:

We do nobody a service by claiming we know all the answers, but we do everyone a service if we argue for proper scientific evaluation, because I think we, all of us, should be confident enough in the value of the arts to be confident that those studies will show, in a convincing manner, the impact that the arts can have on our lives.


For the full text of Clara’s blog series, “The Business of Culture: Museums as Economic Development”, begin with post 1 here.

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